Stagflation Explained: What It Means for Stocks, Gold and Currencies

Updated November 2026

Updated November 2026

Stagflation is high inflation and weak growth at the same time, usually with rising unemployment. The word is back in the news whenever prices climb while the economy slows. This guide explains what stagflation means and what causes it. It then sets out, from primary data, what stocks, gold, currencies and government bonds did in the 1970s and in 2022. It describes the past and makes no forecast.

What is stagflation?

Stagflation is a period of high inflation combined with weak or falling economic growth and rising unemployment. It is unusual, because prices normally rise more slowly when the economy slows.

The stagflation meaning is in the word itself: stagnation plus inflation. The term is usually credited to the UK politician Iain Macleod. In the House of Commons on 17 November 1965, he told MPs that "we have a sort of 'stagflation' situation". A decade later the word described a whole era: in the US, the Federal Reserve's own history calls the 1970s the era of stagflation.

There is a strict version and a loose one. The strict version needs all three parts at once: high inflation, stalling output and rising joblessness. The loose version, common in headlines, means only "inflation is high and growth is weak". That gap matters when people argue about whether a given year counts.

What causes stagflation?

In economics, stagflation is usually traced to a few causes, which often act together:

Supply shocks. A sudden jump in the cost of something every business uses, such as energy, raises prices and cuts output at once. During the 1973 to 1974 oil embargo, the price of oil nearly quadrupled, from $2.90 a barrel to $11.65 by January 1974. In the second shock, oil prices more than doubled between April 1979 and April 1980.
Cost-push inflation feeding into wages. When workers and firms expect prices to keep rising, wage claims and price rises chase each other, and inflation becomes hard to dislodge even as demand weakens.
Policy that stays too loose for too long. If interest rates stay low while inflation builds, expectations can drift upwards. Bringing them back down later usually means a slowdown.
The contrast: ordinary demand-driven inflation. Here strong growth and rising prices go together, because spending outruns what the economy can produce. Stagflation is the awkward case where prices rise while output does not.

Reading these forces, from oil prices to wage data, is part of fundamental analysis, which studies the economy behind prices.

Stagflation in history: the 1970s and 2022

The best-known stagflation example is the 1970s, in two waves: 1973 to 1975 and 1979 to 1980. The table sets the inflation peaks beside the growth and jobs data for each, and adds 2022, the year the word returned to the headlines.

Episode	Inflation peak	Growth	Unemployment (US)
1973 to 1975	UK: RPI 26.9% in August 1975. US: CPI 12.1% in December 1974.	US recession November 1973 to March 1975 (NBER). UK real GDP fell in six of the nine quarters from 1973 Q3 to 1975 Q3.	4.9% in January 1973 to 9.0% in May 1975
1979 to 1980	UK: RPI 21.9% in May 1980. US: CPI 14.6% in March 1980, the peak of the period.	US recession January to July 1980. UK real GDP fell for five quarters in a row, 1980 Q1 to 1981 Q1.	6.3% in January 1980 to 7.8% in July 1980
2022	UK: CPI 11.1% in October 2022. US: CPI 9.1% in the 12 months to June 2022, the largest rise since November 1981.	No NBER-dated recession. Early estimates showed falls, later revised (see below).	As low as 3.5% (July, September and December 2022)

How to read it. UK figures are 12-month rates from the ONS. US CPI figures for the 1970s are 12-month changes in the seasonally adjusted index on FRED; the 2022 figure is the BLS headline rate. The Federal Reserve's history puts the March 1980 peak at "close to 15 percent".

Was 2022 stagflation? It is contested. The inflation side is clear. The growth side changed with revisions. In July 2022 the first US estimate showed real GDP falling at an annual rate of 0.9% in the second quarter, after a 1.6% fall in the first. Today's figures show a 1.0% fall in the first quarter and 0.6% growth in the second. In the UK, the first estimate for July to September 2022 showed a fall of 0.2%; the current series shows growth of 0.1%. US unemployment stayed low. On the strict definition, 2022 had high inflation and a growth scare, but not the full set of stagflation. On the loose one, many commentators used the word anyway.

What stagflation meant for stocks, gold and currencies

Most explainers stop at "gold tends to do well". The table below records what each asset actually did in each episode, from primary data. It is history, not a guide to what any asset will do next.

Episode	Stocks	Gold (US$/oz)	Currencies	Government bonds (10-year yields)
1973 to 1975	S&P 500 fell 48.2% (11 Jan 1973 to 3 Oct 1974). UK share prices fell 70.2% (Aug 1972 to Dec 1974, monthly).	Rose 353% from Aug 1971 to Nov 1974, reaching US$184; then fell 43% to US$104 by Aug 1976 (monthly).	Sterling US$2.36 in Jan 1973, US$2.33 in Dec 1974, then down to US$1.64 by Oct 1976. Dollar against major currencies roughly flat (index 100 in Mar 1973, 101.5 in Dec 1974).	US: 6.46% (Jan 1973) to 8.04% (Aug 1974). UK: 9.17% (Jan 1973) to 16.32% (Dec 1974).
1979 to 1980	S&P 500 fell 17.1% (13 Feb to 27 Mar 1980). UK share prices fell 15.7% (Apr to Nov 1979, monthly), then rose through 1980.	Rose 541% from Aug 1976 to 1980, to US$667; then fell 52% to US$318 by Jun 1982 (monthly).	Sterling rose from US$2.20 (Dec 1979) to US$2.42 (Oct 1980), then fell to US$1.81 by Sep 1981. Dollar against major currencies rose 54.8% from its Jul 1980 low to Mar 1985.	US: 10.39% (Dec 1979) to 12.75% (Mar 1980); daily peak 15.84% on 30 Sep 1981. UK: 16.34% in Oct 1981.
2022	S&P 500 fell 25.4% (3 Jan to 12 Oct 2022). UK share prices fell 7.8% (Apr to Oct 2022, monthly) and ended the year 2.5% above Dec 2021.	US$1,814 at the end of 2022, up 0.4% in dollars. In sterling, £1,501, up 12.5%.	Sterling fell to US$1.0703 on 26 Sep 2022, 20.5% below 3 Jan. Broad dollar index up 5.2% over the year, after a peak 11.3% higher on 26 Sep.	US: 1.63% (3 Jan) to 4.25% (24 Oct), 3.88% at year end. UK: 1.21% (Jan) to 4.11% (Oct); the Bank of England stepped into the gilt market on 28 Sep.

How to read it. S&P 500 falls are peak-to-low daily closes of the price index, without dividends, from tables of S&P 500 bull and bear markets built on Standard & Poor's data. UK share prices are the OECD's monthly average index, which smooths the worst days, so UK falls look smaller than daily data would show. Gold moves for the 1970s are from World Gold Council tables based on monthly averages of the LBMA Gold Price PM; the 2022 levels are year-end LBMA prices. Sterling and dollar figures are monthly averages for the 1970s and daily New York noon rates for 2022. Yields are monthly averages unless a date is given.

What the table shows, without adding to it:

Stocks fell in every episode, by very different amounts: from 17.1% to 48.2% for the S&P 500.
Gold rose strongly in dollars through both 1970s waves, then fell by about half once the second wave ended. In 2022 it ended the year almost unchanged in dollars, but higher in sterling, because the pound fell against the dollar.
Currencies did not follow one pattern. Sterling held up through 1974, slid in 1975 and 1976, rose in 1979 to 1980, and hit a low in September 2022. The dollar was roughly flat in the first wave and rose strongly after 1980 as US rates climbed.
Government bond yields rose in every episode, which means bond prices fell, because a bond's price moves the opposite way to its yield.

Three episodes are not a pattern. Each had its own cause and its own policy response, and nothing here says what the next episode will do.

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Stagflation vs recession vs ordinary inflation

The three are easy to mix up. The difference lies in how growth, prices and jobs move together.

	Growth	Prices	Jobs
Stagflation	Weak or falling	Rising fast	Unemployment rising
Recession	Falling, broadly, for months	Usually rising more slowly	Unemployment rising
Ordinary (demand-driven) inflation	Strong	Rising	Unemployment low or falling

A recession can happen without stagflation, and the 1970s show the two can overlap. Our guide to what a recession is and how markets behave covers the growth side in more depth. Bond markets give another angle: how the yield curve works explains why the gap between short and long yields is watched as a sign of slowing growth.

Stagflation puts central banks in a bind. Raising interest rates fights inflation but can deepen the slowdown; cutting them supports growth but risks letting inflation run on. Around 1980 the Federal Reserve chose the first path, and US 10-year yields reached the highs shown in the table.

FAQ: stagflation questions answered

What does stagflation mean?

Stagflation means high inflation at the same time as weak or falling growth and rising unemployment. The word joins "stagnation" and "inflation". It is unusual, because prices normally rise more slowly when an economy slows. The best-known case is the 1970s, when oil shocks pushed prices up while output fell.

Is the UK in stagflation?

Read three ONS releases. Monthly CPI shows whether inflation is high. Quarterly GDP, first estimated about six weeks after each quarter, shows whether output is stalling or falling. The monthly labour market release shows whether unemployment is rising. Stagflation in the strict sense needs all three at once; early GDP estimates are often revised.

What is an example of stagflation?

The clearest example is the 1970s. In the UK, RPI inflation reached 26.9% in August 1975 while real GDP fell in six of nine quarters. In the US, a recession ran from November 1973 to March 1975 and unemployment rose from 4.9% to 9.0%, while inflation passed 12%.

How is stagflation different from a recession?

A recession is about output: a broad fall in economic activity lasting more than a few months, and prices usually rise more slowly during one. Stagflation adds high inflation to weak growth. So a recession can happen without stagflation, but strict stagflation usually includes a recession or something close to one.

Why is stagflation hard for central banks?

Their usual tools pull in opposite directions. Higher interest rates fight inflation but slow the economy further. Lower rates support growth and jobs but can let inflation run on. In the 1970s and early 1980s, high inflation was brought down only after interest rates rose sharply and unemployment climbed.

Conclusion

Stagflation is high inflation combined with weak growth and rising unemployment. It is rare because prices usually cool when an economy slows, and its best-known cases followed oil shocks. The record from 1973 to 1975, 1979 to 1980 and 2022 is mixed by asset. Stocks fell in each episode, by between 17% and 48% for the S&P 500. Gold rose strongly in dollars in the 1970s, then fell by about half, and in 2022 it ended almost flat in dollars but higher in sterling. Currencies followed no single pattern, and government bond yields rose each time. Whether 2022 counts as stagflation is still contested, because its growth figures were revised up. That record describes the past and is not a forecast. If you follow these markets, see what trading these markets costs today on Ouinex.

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Stagflation Explained: What It Means for Stocks, Gold and Currencies

What is stagflation?

What causes stagflation?

Stagflation in history: the 1970s and 2022

What stagflation meant for stocks, gold and currencies

Stagflation vs recession vs ordinary inflation

FAQ: stagflation questions answered

What does stagflation mean?

Is the UK in stagflation?

What is an example of stagflation?

How is stagflation different from a recession?

Why is stagflation hard for central banks?

Conclusion

Sources

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